We have knitted together the impact on the investment companies from what is now widely considered to be the most severe pandemic in a century. The collapse in asset prices over the latter part of March, brought the curtain down on an up-market that lasted more than ten years. In amongst this, there were pockets, such as the technology sector, that held up well. For many industries, the worst is still to come, as we brace ourselves for the sharpest contraction to global growth since the US great depression.
Companies: ASL SDV ASIT BGEU BRLA CCPE DPA IEM JMF JZCP JUKG EPIC PSHD CSH RIII CCPG BLP TMPL BPCR SEQI AIF SMT CIFU SQNX FAIR ICON RSE CRS GWI USF DIGS
CVC Credit Partners European Opportunities (CCPEOL) achieved an NAV return of 3.1% in sterling and 1.6% in euro terms in FY19. The investment vehicle through which CCPEOL invests achieved a gross return of 2.9% (in euro terms), behind its target of 8–10% per year. This was largely due to several restructuring processes within the credit opportunities pool taking longer than expected. However, these have shown good progress recently and, together with prospective new credit investment opportunities, now offer further upside potential for 2020. Meanwhile, the performing credit holdings delivered solid returns as the investment manager was able to profit from the recent ‘flight to quality’ in credit markets.
Companies: CVC Credit Partners Europn Opprtnity
CVC Credit Partners European Opportunities (CCPEOL) aims to achieve a blend of capital growth and income (it targets gross total returns pre fees of 8–12% pa, with c 5pp from income). It maintains two pools of assets – performing credit with assets acquired close to par and credit opportunities consisting of discounted assets. CCPEOL’s one-year NAV total return (to 10 January) was a modest 3.4% for the sterling shares and was assisted by positive returns in November and December. Throughout most of the year, performance was driven by the performing credit bucket. In turn, credit opportunity returns were muted as the company was working on a number of restructuring processes that we understand started to bear fruit at the end of 2019.
CVC Credit Partners European Opportunities (CCPEOL) aims to achieve a blend of capital growth and income (it targets gross total returns of 8–12% pa, with c 5pp from income). The portfolio is positioned defensively, mainly in senior secured debt of large issuers (average EBITDA above €500m) from Western Europe. Long-term NAV net total return (TR) performance remains broadly intact at 6.4% pa over three years (vs SP ELLI at 3.5% pa), despite weaker performance during the Q418 downturn. Currently both share classes offer a dividend yield in excess of 5%, largely covered by coupon income according to our estimates.
CCPG – CVC Credit Partners European Opportunities – Results of fundraising
CVC Credit Partners European Opportunities (CCPEOL) aims to achieve a blend of capital growth and income (target total returns of 8–12% pa, with c 5pp from income) by investing in high-yielding debt instruments such as senior secured loans and sub-investment grade bonds. The portfolio is biased towards large, liquid issuers (€600m weighted average EBITDA) in Western Europe, although up to 40% may be allocated to non-European markets. The underlying investment vehicle holds a blend of investments in performing credit, where returns come mainly from income, with a credit opportunities portfolio made up of discounted assets that offer higher yields and the potential for capital growth. CCPEOL’s performance since launch in 2013 has been solid, although the broad-based sell-off in late 2018 has affected returns more recently. The fund has sterling (CCPG) and euro (CCPE) share classes, which have tended to trade close to NAV, and currently yields just over 5%.
Blackstone / GSO Loan Financing – Half-year report | CVC Credit Partners European Opportunities – Half-year report | Woodford Patient Capital– Half-year report and portfolio update | Real Estate Credit Investments – Proposed placing
Companies: BGLF CCPG SUPP RECI
CVC Credit Partners European Opportunities (CCPEOL) seeks to achieve gross returns of 8-12% a year by investing in a portfolio of high-yielding debt investments with a bias towards Western Europe. The majority of the portfolio is in floating rate, senior secured loans, which, while rated below investment grade, rank higher in the capital structure than equities or bonds. The strategy blends performing credit, where returns come mainly from income, with more opportunistic investment in credits that are priced below par, offering a yield pick-up as well as capital growth potential. In spite of sustained strong issuance and refinancing, which puts downward pressure on yields, the managers see opportunities from accelerating disposals of non-core assets by banks, industry dislocations in areas such as retail, and expected periods of volatility around interest rate rises.
CVC Credit Partners European Opportunities (CCPEOL) seeks returns of 8-12% a year by investing mainly in high yielding sub-investment grade loans. A focus on senior secured assets mitigates the higher risk from lower credit quality. The bias to floating rate credits means rising interest rates should be a benefit rather than a drag. The portfolio is split roughly 50/50 between performing credit, where returns come mainly in the form of income, and credit opportunities, where assets are priced below par and thus offer potential for capital appreciation and downside protection due to the discounted price. There are relatively few alternative ways for individual investors in Europe to access the senior loans market, since loans are not permitted investments in open-ended UCITS funds. Sterling and euro share classes are available, and a recent placing of treasury shares has increased the market cap of each class by £77.55m and €13.87m, respectively.
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AFH interim results have shown resilience in a tough period. Revenues grew by 5% yoy and Adj. EPS is up 8% yoy. We reduce our FY20 EPS forecast by 8% to reflect the wider market falls and slower new business due to the lockdown. This reduction in earnings is significantly less than peers, highlighting the defensive nature of the business and the prudent temporary cost measures being introduced in FY20. The improved FCF of the business should lead to a re-rating, particularly as AFH now trades on 9.3x CY20 P/E, a significant discount to peers. Our reduced target price of 524p implies 81% upside. Re-iterate BUY.
Companies: AFH Financial Group
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
Companies: AGY ARBB ARIX DNL GDR NSF PCA PIN PHNX PHP RE/ RECI STX SCE SIXH TRX SHED VTA
Burford has announced its results for 2019. As previously indicated, these were lower than in the previous year. Revenue fell 17% from $430m in 2018 to $357m. Profit after tax, on Burford’s basis, declined 31% from $329m to $226m. As announced earlier, there will be no final dividend so only the interim dividend of ¢4.17 was paid for FY19. Unusually, Burford has also released a trading update for early 2020 alongside its main figures. Court results and arbitral awards have been obtained that would generate some healthy profits. Most notable is $200m in income ($300m in cash receipts) regarding which further legal review is unlikely.
Companies: Burford Capital
Aside from its FY 19 earnings presentation, British Land has adopted a more cautious anticipation about Offices in the City of London. We share this pessimism and have been surprised by the recent share’s bump. The latter is the opportunity to turn negative, again, and update our divestment case.
Companies: British Land Company
Hipgnosis Songs Fund (SONG LN) has today announced a trading update for the full year ending 31 March 2020. The unaudited NAV has risen 13% YoY to 116.7p, up 14.3% since the last published NAV of 102.2p as at 10 January 2020. This represents a like for like valuation uplift of 11.4%. All equity has been fully deployed and shareholder approval has been sought to increase net debt from 20% to 30%. Revenue is strong with £64.7m generating an EPS of 10.7p (more than 2x the annual 5p dividend target). NAV growth has been driven by revenue statements which were up 2%, and an increase in streaming growth rate assumptions by the independent valuers. The portfolio comprises 54 catalogues, with 13,291 individual songs, now valued at £757m which was acquired at purchase price of £697m on an acquisition multiple of 13.9x – now valued on 15.0x historical earnings.
Companies: Hipgnosis Songs Fund
Ramsdens has reported a strong set of trading results in the last twelve months to March 2020. COVID lockdown has led to store closures, which will lead to weaker trading over the following months. However, Ramsdens has a very solid balance sheet, is diversified and is well positioned to re-open stores and continue its growth. We use an 8x multiple on last 12 months to March 2020 earnings as a reflection of a normalised earnings base which reduces our target price to 162p from 180p. At this target price Ramsdens would trade on a CY20 P/B of 1.5x. This target price offers 15% upside and we re-iterate BUY.
ULR’s finals were in line with on EPRA NAV and earnings a little better than expected. Valuations remain stable and full rent collection has been achieved for the current quarter. We see fundamental quality and resilience in the (now expanded) portfolio – ULR has already invested nearly £100m in the first two months of the new year following the £136m equity raise. We make no material changes to forecasts. Current valuation points to an 7%+ annualised return, with upside remaining from deployment of funding headroom, active management and potential for valuations to improve.
Companies: Urban Logistics REIT
TCS has confirmed it will pay the previously announced interim dividend of 3.25p. A number of mitigating actions to preserve cash ensures that this is affordable. We estimate the £1.7m payment is less than 10% of cash and available facilities, which should be little changed from the April update. Rent collection levels of 75%, or 86% including deferrals, is resilient under the circumstances. There are also optimistic signs from Europe that people will be shopping in material numbers from 15 June. TCS will have all locations safely open from that date. We lower our NAV forecasts c.2%, mostly for the dividend payment, but also for a tougher outlook for CitiPark. Official guidance understandably remains withdrawn. The shares currently price in a c. 30% decline in underlying property values, which we think is excessive. On this basis, we see upside to the share price, setting it at 235p, still a c. 25% discount to NAV while short-term visibility is low. BUY
Companies: Town Centre Securities
The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
Companies: AEWU CREI CSH BOOT INL HLCL THRL SUPR RESI RGL DIGS GR1T SOHO PHP BOXE ASLI UTG AGR UAI BLND UANC CAL SHED CWD WHR EPIC WKP GRI YEW HMSO PCA INTU NRR
Today’s FY update reports that the decisive action taken at the outset of the COVID crisis has protected returns. Revenues held up through to the May year end. Aided by cost savings, adj. EBITDA is expected to be 20% ahead. We expect a more modest final dividend to protect the capital surplus. Additional savings have been outlined, which we overlay on a conservative “flat market/fewer new clients” scenario for FY21e – where we hope outperformance is possible. Updating EPS forecasts: FY20e +25%, FY21e -10% and FY22e -7%; also incorporating the Hurley Partners acquisition (+8%). We consider MW a high quality core holding with long term potential.
Companies: Mattioli Woods
Tetragon Financial Group (TFG, Tetragon) achieved a 13.6% NAV/share total return and a 13.4% ROE in FY19, in line with its long-term target of 10–15%. The main driver of Tetragon’s performance was its asset management business (TFG Asset Management), which comprises managers with a total AUM attributable to Tetragon of US$27.4bn and generated an EBITDA of US$59.5m in FY19 (up 51% y-o-y). The late-2019 investment activity left Tetragon with a relatively low net cash position (4.1% of NAV at end-April). The shares trade at a three-year average discount to NAV of 44% (currently at 62.7%), which is relatively wide compared to peers given the company’s track record of delivering a 16% NAV TR pa over the last 10 years. The recent market sell-off has so far resulted in a 5.1% decrease in NAV (ytd to end-April 2020).
Companies: Tetragon Financial Group
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGR CSH ESP DIGS IHR LXI PHP RESI SIR SUPR THRL SOHO BBOX SHED WHR
Seneca Global Income & Growth Trust (SIGT) is managed by a four-strong team at Seneca Investment Managers, seeking undervalued securities across multiple asset classes in order to diversify the trust’s risk and return drivers. Its UK equity portfolio was particularly negatively affected by the coronavirus-led market sell-off in March, given its focus on domestic, mid-cap value stocks, which performed relatively poorly. However, these holdings could stand SIGT in good stead during an economic recovery. The trust’s board has committed to continue paying quarterly dividends, using reserves where necessary if income falls short, which seems likely given the number of dividend cuts announced by corporates in response to the global pandemic.
Companies: Seneca Global Income & Growth Trust
MJ Hudson has confirmed that it expects to achieve profits in line with expectations for FY20E. This is a good result linked to new client wins during the COVID-19 disruption and timely cost management. Whilst much of the group's activities are proving resilient, uncertainty remains and in line with most of the peer group, MJ Hudson is withdrawing guidance for FY21E. We similarly withdraw our FY21E forecasts until visibility improves, moving our rating to Under Review. Meanwhile, the shares are now down 30% since their pre-COVID-19 highs, which is beyond that seen at outsourcing peers (Sanne, JTC). Whilst COVID-19 is presenting challenges for many businesses, we believe that: 1) the structural growth drivers in alternatives that underpin MJ Hudson's growth will continue to remain highly relevant, and 2) its strong balance sheet gives it a relative advantage.
Companies: MJ Hudson Group
Today's update confirms Equals delivered another quarter of significant revenue growth YoY, delivered by organic and acquisitive means. Performance across the product range has varied unsurprisingly and we expect these trends to continue over Q2/20E. Given the great uncertainty over the duration and severity of COVID-19's impact on the group, we withdraw FY20-21E forecasts and place our recommendation Under review, awaiting further clarity. Equals is supported by a strong, debt-free, balance sheet and is undertaking measures to further conserve cash.
Companies: Equals Group